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Chapter 12: Q1BE (page 638)

Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift鈥檚 journal entries to record the purchase of the patent and 2017 amortization.

Short Answer

Expert verified

To record the purchase of the patent, Patents are debited, and cash is credited by $54,000.

To record the 2017 amortization, Amortization expense is debited, and patents are credited by $5,400.

Step by step solution

01

Calculation

AmortizationExpensefordefendingthepatentsuitin2019=(CarryingvalueofpatentrecordedonJan1,2018+priceofdefendingsuit)/remainingusefullifeCarryingvalueofpatent=54,000-(2脳5,400)=43,200Remainingusefullife=10years-2yearsofamortization

02

Journal Entries

Date

Particulars

JF

Debit

Credit

Patents

$54,000

Cash

$54,000

(Being patents purchased by Salmon company)

Amortization expense

$5,400

Patents

$5,400

(Being yearly amortization recorded)

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Most popular questions from this chapter

Use the information in IFRS12-6. Assume that at the end of the year following the impairment (after recording amortization expense), the estimated recoverable amount for the patent is \(130,000. Prepare Kenoly鈥檚 journal entry, if needed.

Kenoly Corporation owns a patent that has a carrying amount of \)300,000. Kenoly expects future net cash flows from this patent to total \(210,000 over its remaining life of 10 years. The recoverable amount of the patent is \)110,000. Prepare Kenoly鈥檚 journal entry, if necessary, to record the loss on impairment.

The following is selected information for Alatorre Company.

1. Alatorre purchased a patent from Vania Co. for \(1,000,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017?

2. Alatorre bought a franchise from Alexander Co. on January 1, 2016, for \)400,000. The carrying amount of the franchise on Alexander鈥檚 books on January 1, 2016, was \(500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?

3. On January 1, 2017, Alatorre incurred organization costs of \)275,000. What amount of organization expense should be reported in 2017?

4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2017, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?

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